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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On October 1, 2019, Graham’s Weed&Feed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of $3,200. The contract does not include any stipulations for additional periods. On June 1, Graham’s Weed&Feed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is $4,000 per month and is also retroactive to April 1, 2020.

During April and May of 2020, while the new contract was being negotiated, Graham’s Weed& Feed continued to maintain the grounds, and BigData continued to pay $3,200 per month. BigData was satisfied with Graham’s Weed&Feed’s performance, and the only issue during negotiations was the monthly fee.

Required:

Determine if a valid contract exists between Graham’s Weed&Feed and BigData during April and May 2020.

To determine

Ascertain whether a valid contract exists between incorporation G and Corporation B.

Explanation

Contract:

Contract is an agreement among two parties or more parties which includes enforceable obligations and rights. A contract can be written, oral or implied by ordinary business practices.

Valid contract existed among Incorporation G and Corporation B. During the month of April and May Corporation B continued to pay its monthly fee and Incorporation G continued to perform its obligation.

 All of the parties to the contract approve the contract (in writing, orally, or implied) and commit to performing their “obligations” under the contract.

Criteria that company must apply to revenue recognition standards to contracts are as follows:

  • Parties to the agreement must accept the contract either in written form, orally, or by implication...

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